mikeaponte.comMike Aponte - World Series of Blackjack Champion2015-03-27T17:41:11Zhttp://mikeaponte.com/feed/atom/Mike Apontehttp://mikeaponte.com/?p=51102014-04-08T06:32:27Z2014-04-08T04:46:03Z

Deadwood South Dakota has a storied history – an illegally founded town whose economy was built on gold mining and bolstered by prostitution and gambling. Several weeks ago I meet with the South Dakota Gaming Commission regarding claims that a small group of players have brought back the unlawful gambling days of Deadwood by unfairly colluding in poker tournaments. The goal of the South Dakota Gaming Commission was to determine what steps to take to deal with the public perception that poker games in Deadwood are not on the square. One of the key objectives of the 2-day consulting was to educate the four casinos in Deadwood on the difference between advantage play which is legal and criminal play which is not. As a legal rule of thumb, play that meets any of the following 3 criterion is criminal in nearly every gaming jurisdiction in the US.

2) Makes use of a device, electronic or otherwise to gain an advantage – i.e. video camera or predictive device such as a smartphone program

3) Involves collusion with the communication of information that is not available to all players at the table – i.e. dealer signaling the hole card

The first two criterion for criminal play are patently obvious to most people in terms of both the spirit of fair play and the letter of law. When it comes to team play however, the legal distinction has to do with the information that is being passed along. For example, communicating the running count to a teammate in blackjack is legal because this information is available to all players at the table. By law, all cards in blackjack must be shown before being placed in the discard tray; thus, all players have an equal opportunity to keep track of the count. On the other hand, the passing ofpocket card information in poker constitutes illegal collusion since this information is not accessible to all players at the table.

To re-gain the public’s trust in the poker games of Deadwood, the SD Gaming Commission has decided to write into gaming law four simple rules:

1) Poker cards must be replaced at least once a day

2) No electronic devices will be permitted at poker tables

3) Player seating at poker tournaments will be determined by a randow drawing

4) A limit will be placed on the number of re-buys in poker tournaments

These easy-to-implement, low cost measures will significantly reduce the risk of unlawful collusion and other illegal poker activity, and should help to increase Deadwood’s poker tournament revenue to to its previous high from three years ago.

In winning his first four games on Jeopardy, Arthur Chu has caused a stir among fans of the television show. Chu has employed a number of game strategies that have annoyed and even enraged some of the show’s followers.

1) Hunting for Daily Doubles – Instead of moving progressively down a category of questions from top to bottom, Chu jumps around all over the board. He selects the hardest questions first because most of the Daily Doubles are in the bottom 2 rows. If the two hardest questions do not reveal a Daily Double, Chu immediately jumps to another category, regardless of whether that category of questions has not been completed.

2) Frenetic Paced Play – Chu has also drawn criticism for aggressively buzzing in as well as cutting off Alex Trebek in mid-sentence on a regular basis. It’s the opinion of some that Chu violates the unwritten rules of etiquette when he does not allow Trebek to complete his witty commentary.

3) Playing for the Tie in Final Jeopardy – In one of his games, Chu had the lead going into Final Jeopardy, and wagered an amount such that if he and the second place contestant both answered correctly, they would tie, and that’s exactly what happened. Many viewers were confused as to why he did not play for the outright victory.

My personal take on Chu’s play – I’m a big fan. In the game of Jeopardy, Chu personifies an Advantage Player. Hunting and finding Daily Doubles has tremendous value – not just in the potential to double your winnings with one correct answer, but also in preventing opponents from landing them. Chu’s motivation for playing the game at breakneck speed is to answer as many questions as possibile in order to win more money. Accomplished card counters apply the same approach, as well as high powered offenses in the NBA and NFL. If you have the advantage, then you increase your probabillity of winning by maximizing the number of playing opportunties; whether it’s Jeopardy questions, hands per hour at the blackjack tables, or possessions per game in sports.

As for Chu’s tie in Final Jeopardy, he played it perfectly. If his competitor had answered incorrectly, Chu would have advanced regardless of whether his answer was right or wrong. Chu wagered an amount such that the worst case scenario was a tie. When two contestants tie in Jeopardy, both win and advance. Chu’s Final Jeopardy wager guaranteed that he would move on. If he had wagered a dollar more, like most Jeopardy contestants would have, Chu could have potentially lost.

Most of the ire directed at Chu has to do with the perceived impact on viewers’ entertainment experience. But should the subjective opinion of some take priority over Chu or any other contestant’s right to play the game strategically within the rules of game to give them the best chance to win? Chu is not the first player on Jeopardy to use strategy and game theory to his advantage. There have been a number of others, such as former Jeopardy winner, Keith Williams. You can find detailed analysis on the optimal strategy for Final Jeopardy on his site The Final Wager. Fortunately Chu also has a considerable number of supporters who are rooting for him. Both his fans and critics will have to wait until Jeopardy airs again on February 24 to see if Chu’s advantage player strategies continue to pay off.

Americans spent $58 billion dollars on lottery tickets in 2011 in hopes of defying the odds and striking it rich. The tremendous popularity of the lottery despite it’s horrific return on investment has led some to cynically label the lottery as a stupidity tax. However, a group of MIT students figured out how to turn the lottery from a losing proposition into a lucrative enterprise. They recognized that about every 3 months when the Massachusetts Cash WinFall jackpot reached roughly $2 million, the payoffs for smaller prizes would significantly increase if there was no winner. Like a card counter waiting for the odds to swing into the player’s favor, the lottery group would wait until the jackpot reached a level high enough to produce an advantageous investment opportunity. By purchasing $100,000 worth of tickets, they virtually guaranteed they would win. The MIT lottery syndicate purchased over $40 million in tickets from 2005 to 2011, winning approximately $48 million.

Lottery officials learned about the profitable loophole but didn’t take action because the professional gamblers generated millions in revenue for the lottery. After the the loophole became public in 2011, lottery officials enforced a $5,00o limit on the amount of the tickets that retailers could sell per day. Earlier this year the Cash WinFall game was stopped. More details here…..

I get asked fairly often about continuous shuffle machines (CSM’s) and their effect on the game of blackjack. With CSM’s, no discard tray is needed because the dealer continuously places the played cards into the shuffle machine (for example, after a player busts a hand). This provides a constant randomization of the cards which negates the benefit of card counting. Fortunately, at the vast of majority of blackjack tables you will not find CSM’s. The casinos that do employ CSM’s, use them only at a select number of tables – usually low minimum tables. What saves card counters from the prospect of casinos using CSM’s at all their blackjack tables is the superstitious and unknowledgeable nature of gamblers. Many blackjack players refuse to play at tables with CSM’s, especially the bigger bettors. They don’t trust CSM’s because they believe that CSM’s rig the game or increase the casinos’ advantage. The reality is that the average blackjack player does have cause to worry about CSM’s but not for the reason they believe. CSM’s do not increase the house edge. In fact, if you play perfect basic strategy CSM’s actually lower the house advantage by a tiny bit. Where CSM’s really hurt the average gambler is that they allow the house to deal more hands per hour because there is less downtime. Since the dealer never has to shuffle the cards, more hands are dealt per hour which means blackjack players bet more often and of course lose more money. Ironically it is the typical blackjack player who lacks the knowledge & skill to beat the house who is unknowingly helping card counters by preventing the spread of CSM’s.

]]>6Mike Apontehttp://www.mikeaponte.com/?p=39922014-02-10T18:41:07Z2012-08-01T06:49:11ZLast week I attended Def Con, the world’s largest computer hacker convention which is held annually in Las Vegas. It was the first time I have attended the convention and it was quite a scene. Well over 10,000 people attended Def Con 20, including computer security specialists, hardware hackers, law enforcement, cyber criminals and those just curious about hacking. Jeans and dark t-shirts were standard uniform, although it was not uncommon to see some sporting goth-like dress or mo-hawks. One of the most interesting speakers at Def Con 20 was Keith Alexander, Chief of the NSA (National Security Agency). In partly a recruitment effort, Alexander addressed the hackers at Def Con and urged them to help secure America’s infrastructure. He also emphatically denied claims that the NSA keeps dossiers on all Americans.

I was invited to speak at Def Con about a different kind of hacking – my experience with the MIT Blackjack Team. After a showing of the movie 21, I spoke about how our team exploited an inherent vulnerability in the game of blackjack – it’s dependent event nature. The expertise of hackers is exploiting vulnerabilities & weaknesses in computer systems. The parallels were very evident to the audience. They also appreciated the underdog aspect of how a bunch of college kids took on the “Man” and won. The energy and camaraderie at DefCon reminded me of my college days as well as my card counting experiences. During the course of my talk and Q & A session I received a number of rousing ovations. Def Con has a strong spirit of sharing, learning and fun. During the convention many presentations were made on a wide range of hacking subject matter, such as breaking wireless encryption keys and finding back doors to hardware. There were also contests such as Capture The Flag, a competition in which teams of hackers must both attack and defend identically configured servers. While I was at Def Con I was interviewed by The Verge, a technology focused publication. Among the topics discussed was the similarities between the culture of hackers and the culture of advantage players. Video of the interview to come. In the meantime, you can check out a Card Counting 101 tutorial that I provided for the Verge. You can also view the video in my video gallery.

Last week I met with Michael Covel, author and president of Trend Following, a privately owned firm specializing in trend trading research. Michael recorded our lunch meeting as he interviewed me about my experiences with the MIT Blackjack Team. We were both struck by the similarities and connections between trend trading and card counting. Expected return, risk management and a systematic approach are just some of the strong commonalities. Michael was kind enough to give me a copy of his documentary, Broke, along with several of his books. Since our meeting I have read The Complete Turtle Trader: How 23 Novice Investors Became Overnight Millionaires. It was a fascinating read and I hope to interview Michael myself to learn more about trend trading and how investors can best navigate the often treacherous waters of financial markets. More to come on trend trading as well as the amazing story of the Turtle Traders. Below is a link to the interview, part of Michael’s podcast.

Every January I attend the Blackjack Ball – an invitation only event in Las Vegas for the professional blackjack community. Many of the best advantage players in the world travel from as far as Asia and Europe for an evening of light revelry. There was a very special guest at this year’s Blackjack Ball. Blackjack luminary, Ed Thorp, attended the Ball for the very first time. In 1962 Thorp published Beat The Dealer after proving his system of card counting gave blackjack players an advantage over the house. Up until that point it was believed that it was impossible to legally beat the casinos at any game.

When Thorp was a professor at MIT, he built upon the work of four army mathematicians – Roger Baldwin, William Cantey, Herbert Maisel, and James McDermott. In 1956, Baldwin, Cantey, Maisel and McDermott derived basic strategy, the set of optimal playing decisions in blackjack. The four army mathematicians came to be known as the “Four Horsemen” in the professional blackjack world. The Four Horsemen laid the foundation that was instrumental to Thorp forumulating a system that captured the dependent event nature of 21 and swung the advantage to players.

Thorp’s card counting days were short lived as he chose to only play long enough to confirm that his card counting system worked. In addition to having a distinguished career in academia, Thorp went on to apply the same principles and analytical skills he used to formulate card counting to the financial markets. Thorp ran one of the most successful hedge funds in the country. His investments yielded a 20% annualized return. In an interview, Thorp was quoted as saying, “The overlap of interest between gambling and the stock market is very high. It’s an amazing phenomenon. But there are so many similarities and so much one can teach you about the other. Actually, gambling can teach you more about the stock market than the other way around. Gambling provides an analytically simpler world, and you can see principles and test theories.”

Even in such an accomplished group, Thorp was the star of the evening, and he showed himself to be every bit as gracious as he is brilliant. After delivering a short speech, Thorp received a rousing standing ovation. It was truly an honor for me and everyone in attendance to meet the man that made it all possible.

The mean or the average of the count in blackjack is zero as there are an equal number of low cards and high cards in any shoe or complete number of decks. The further away the count is from zero, the stronger the tendency that it will move back toward the mean. Professional card counters gain an advantage by wagering larger bets during positive deviations in the count when there is a greater probability that favorable high cards will be dealt as the count returns to its center of zero.

In the financial world, conventional wisdom is to buy when a stock is undervalued and to sell when the price is high. The law of regression to the mean states that probability wise, extreme values are more likely to be followed by less extreme values. Reversion trading is based on buying or selling stocks that are out of line with their “normal” pricing. Traders profit when market prices return to their average just as card counters do when positive counts move back to the mean count of zero.

Although reversion trading is based on mathematical law, there’s no guarantee that this approach will yield a profit. The million dollar question is what is the true mean of a stock or commodity? Variables used to forecast the market such as P/E ratios, interest rates, and investor confidence, just to name a few, are constantly changing. In addition to the ever changing nature of market variables, another challenge is determining the appropriate time horizon for the mean price. Many traders have learned the hard way that models that were successful in the past may no longer produce a profit, or may have been an aberration that was the beneficiary of chance.

In the game of 21 as well as the financial markets, it is possible to forecast the future and capitalize on deviations from the mean if the key variables are captured and weighed properly and the true mean and its corresponding time horizon are determined. As compared to the financial world, blackjack offers a static predictive measure (the count), as well as an explicit mean and time horizon. Unlike a stock or commodity, in 21, what goes up truly must come down. This makes the return on investment in blackjack unmatched by that of any trading model in the financial world.

]]>0Mike Apontehttp://www.mikeaponte.com/?p=27832012-08-16T04:10:40Z2011-05-18T00:06:30ZIn the minds of gamblers, the dream of striking it rich far outweighs the reality of the less than favorable odds. Nowhere is this more apparent than with the lottery. The odds of winning the lottery are astronomically low but when you factor in the millions of tickets that are sold, sooner or later someone will most definitely win. Last month a high roller in Atlantic City hit the blackjack equivalent of winning the lottery when he pulled in nearly $6 million. The odds, although slim, were much greater as compared to the lottery – especially when you factor in that he was playing at a $50,000 limit table. However rare, it’s stories like this that drive people to gamble at the blackjack tables and purchase lottery tickets.
]]>0Mike Apontehttp://www.mikeaponte.com/?p=27342014-02-13T09:16:21Z2011-04-13T07:27:40Z

On a riverboat casino I once witnessed a 21 year old kid parlay a $25 buy-in into $1000 in less than an hour. As his chip pile grew so did his grin, and he insisted on high fiving me repeatedly. I was happy for him but I was hoping he would take his money and run. Instead, he tried to ride his luck even further – even increasing his wagers to $200, $300 a hand. He was playing with “house money” and he figured he had nothing to lose. However he did have something to lose and unfortunately the story had an all too familiar ending. He hit a bad run and gone was his $1000 grin.

This is a common phenomenon among gamblers. When they’re lucky enough to be up on a casino, rather than quitting while they’re ahead or keeping the size of their wagers at a modest level, they become loose in their play and they take on even more risk. There’s a disconnect between the perceived value of their gambling winnings and their actual value. But $1000 is a $1000, regardless of whether it’s casino chips or a paycheck.

In behavioral economics, the tendency to value some dollars less than others is called “mental accounting”. This concept was developed by Professor Richard Thaler of the University of Chicago. People tend to place gambling winnings in the category of “bonus” or “found” money. People are more likely to make frivolous or unnecesary purchases with their tax refund or gift money as opposed to income earned on the job.

What contributes to gamblers placing less value on house money is the use of casinos chips. The value of casino chips are cheapened in much the same way that credit card dollars are because there is seemingly no immediate loss of money. For some, credit cards and casino chips are like monopoly money. Shoppers are much more likely to spend beyond their budgets on credit card purchases as compared to cash purchases. When buyers fork over cash, the value of of their hard earned money hits home harder. In casinos it’s easier for gamblers to risk hundreds, even thousands of dollars when they’re pushing out chips instead of cash.

So the next time you’re fortunate enough to be winning at the blackjack tables, or receive a tax refund or bonus check, be sure to keep your mental accounting in proper perspective. If you don’t, it can be detrimental to your financial well being.